Investors knew all was not well at MF Global. Its stock price tumbled last week, giving it a market capitalization of $200 million, not much when compared to $40 billion in assets. Headlines on Friday said customers were starting to walk. The company was in much worse shape than it appeared, and the first concrete evidence of trouble came this morning when the New York Fed and New York Stock Exchange suspended the company. Since then we have learned that buyout talks over the weekend did not progress far and after continuing late into the night, were called off at 5 a.m. so that the company could prepare its bankruptcy filing.
Though classified as a broker-dealer, MF Global was operating more in the manner of a hedge fund toward the end, with a startling $6.3 billion in exposure to European sovereign debt. Wall Street will try to shrug off its bankruptcy as the equivalent of a hedge fund liquidation. But it will be expensive for JPMorgan and Deutsche Bank, each of which are owed $1 billion, according to the bankruptcy filing.
The MF Global bankruptcy won’t completely undo Wall Street’s stock trading gains this month, but it is another reminder of how fragile the big-money financial web can be.